Thursday 3 March 2016
[Mr Charles Walker in the Chair]
Offshore Oil and Gas Industry
I beg to move,
That this House has considered the offshore oil and gas industry.
It is a pleasure to serve under your chairmanship, Mr Walker, for this important debate. I am grateful to the hon. Members for North Tyneside (Mary Glindon) and for Aberdeen North (Kirsty Blackman) for the work they did in helping to secure it.
The North sea oil and gas industry is a significant employer in my constituency, with Lowestoft and its port being an important service centre. It is important to have this debate now as the industry faces major challenges that need to be addressed urgently. Further fiscal measures need to be introduced in the Budget on 16 March, and the debate provides us with an opportunity to consider what such measures should be as well as the industry’s longer term framework.
First, the industry must survive. We must then ensure that everything possible is done so that it can thrive. We owe that to those who work in what is in many respects a dangerous industry, to their families, to the communities from which they come and to those businesses who are making investment decisions in a risky and unpredictable market—particularly so at this time—to give it that sustainable and, I think, exciting future.
The oil and gas industry on the UK continental shelf faces serious challenges. It is fighting for its very existence and tens of thousands of people’s livelihoods are on the line. About 75,000 jobs have gone in the past 15 months, primarily due to the collapse in oil prices and the increasing maturity of the UKCS as an oil and gas producing basin. The industry is drowning in a tsunami of oil and gas supply just as demand is cratering around the world.
In mid-2014, oil was trading at in excess of $100 a barrel, but today the price is between $30 and $35 per barrel. At the beginning of the year the combined market value of 112 publicly traded oil companies—the entirety of the UK’s oil and gas industry excluding Shell, BP and GP—had the same value as Marks and Spencer: £7 billion. Two years ago, just one of those companies, Tullow Oil, was worth more than Marks and Spencer: it had a market value of £8.2 billion.
Oil & Gas UK’s recently published activities survey for last year confirms the serious nature of the situation. While production on the UKCS rose by 9.7% in 2015 to 1.64 million barrels of oil equivalent a day, revenues fell by 30% between 2014 and 2015 to £18.1 billion, and although the industry has been successful in achieving significant cost reductions and efficiency improvements, 43% of the UKCS oil fields are likely to be operating at a loss in 2016 at prevailing prices. Oil & Gas UK estimates that, in the southern North sea, 51 fields may cease production by 2020. That is a third of the fields in that area and equivalent to 51 factories closing their gates.
Oil and gas companies are cutting almost all of their discretionary expenditure to survive in a $30-a-barrel world. Intense global competition for capital and contraction in expenditure is leading to a major downturn in activity and subsequent job losses across the sector. There is concern that the situation will get worse over the coming year as companies in the supply chain complete contracts commissioned in better times and the insulation provided by price hedging taken out by many operators disappears. The industry is used to working with great uncertainty and risk, but with greater market volatility and lower prices likely to prevail for much longer augmented by the challenges of working in a mature basin, there is a need for a more robust framework. There is a moral imperative as well as a business imperative to manage the industry better.
Some might say that, with all those challenges, why does it matter? It really matters. The industry is vital to UK plc. Despite the job losses, 375,000 people are employed in the industry, its supply chain and ancillary service industries, with those jobs concentrated around Aberdeen, on Tyneside and Teesside, and in East Anglia around Great Yarmouth and Lowestoft. If we do nothing, in effect we will be hollowing out those communities.
There will also be a knock-on effect on other areas of the economy such as steel production in manufacturing and in the City, where oil and gas company shares figure prominently in many pension funds. The industry has also built an integrated supply chain that is the envy of the world, which produces exports worth an estimated £39 billion a year. We have great depths of knowledge and expertise built on decades of experience that we must nurture and cherish, not throw away.
In 2014, UK oil and gas provided 68% of the UK’s total primary energy and, in the same year, 45% of the oil we used came from the UKCS, 48% of natural gas came from UK natural gas production and the industry provided £2.2 billion in taxation to the Treasury, though that was the lowest figure for 20 years. The situation has deteriorated in the past 18 months, but, despite the serious challenges, the UK offshore oil and gas industry has a vital role to play in the next 30 years. There are numerous reasons for that.
First, energy security must be a priority for the nation. We need to be able to maximise production of oil and gas at home to reduce our dependency on imports in an increasingly uncertain world. Secondly, while 42 billion barrels of oil equivalent have been produced from the UKCS in the past 50 years, there are known reserves of 20 billion barrels of oil and gas to be recovered from our offshore waters. Of that, there are 8 billion barrels of natural gas. As the Secretary of State set out in her reset speech for energy policy in November, gas has a key role to play in keeping the lights on in the immediate future. Recovery of those reserves, and hopefully others, is a prize worth fighting for.
Thirdly, the Secretary of State in her reset speech also set out an exciting future for offshore wind, an industry that is bringing exciting opportunities to East Anglia. Offshore oil and gas in many respects complements offshore wind because their supply chains overlap. The transition to a low-carbon economy will not take place overnight, and oil and gas production on the UKCS has a vital role to play in securing a smooth transition and helping to build another world-class industry of which Britain can be proud.
Fourthly, I do not wish to be unnecessarily negative about another technology, but we must be realistic about the role that onshore fracking will play in the immediate future. It will have to overcome planning hurdles, and it should be pointed out that in the US they have known about large tight gas fields since the 1930s. They are working those now because new technology has made that viable. In the UK, first we must establish the extent of those fields and then we must assess their full economic viability and establish the infrastructure to service them. We already have that infrastructure in the North sea, so it makes sense to make best use of it.
While the industry’s challenges have come into stark focus in the past 18 months as the price of oil has plummeted, its structural defects have been evident for some time. That is why the previous Secretary of State, Ed Davey, instructed Sir Ian Wood to conduct a review. Sir Ian published his findings in February 2014. They were endorsed across the industry and across this House, and form the basis of much of the Energy Bill. His main recommendations were to commit the industry to the principle of MER—maximising economic recovery from the UKCS—and, to achieve that, to create a new arm’s-length regulatory body to provide effective stewardship and regulation. That body is the Oil and Gas Authority, which is the cornerstone of a new strategy: a tripartite approach of industry, the OGA and Treasury working together. The OGA will promote collaboration, which is vital to ensure that infrastructure is used and shared on a fair basis and that decommissioning takes place at the right time, not prematurely, which would undermine the objective of MER. The OGA will give greater security to those working in the industry.
Some might say that Sir Ian wrote his report in a different time, when the industry was not facing the acute challenges it is today, and that his recommendations are out of date. I disagree. The framework he recommends provides the industry with the best chance at survival and at realising its potential over the next 35 years. Time is of the essence, as Sir Ian stated in his report, and it is vital that the Energy Bill receives Royal Assent as soon as practically possible in the next few weeks.
Sir Ian stressed the importance of the industry collaborating. I will come back to that theme quite a lot over the next few minutes. It was a theme taken up by Deloitte in its recent publication, “Making the most of UKCS: Collaborating for success”, which highlighted that all too often in the past, collaboration in many oil and gas companies has been left to a few heroes—the few trusted individuals who
“actively look for opportunities to collaborate and ensure that their partners share the benefits.”
Deloitte points out that
“companies should do more to foster a collaborative environment through leadership, targeted strategies, allocated resources and personal objectives linked to rewards. Successful collaboration depends on encouraging workforce to focus on the end-result, sharing goals and empowering staff to accept compromise, rather than systems and processes.”
Deloitte adds that while there are good examples of collaboration, there are clearly opportunities for improvement for both operators and those in the supply chains, which should be doing more to
“improve financial incentives and contractual terms to encourage collaboration.”
It adds that
“operators especially need to improve in areas that foster innovation—such as seeking out new ideas and solutions, or implementing change effectively.”
It is vital that instead of a few individual heroes, there is a whole legion of them operating throughout the industry.
I will provide a quick comic interlude. On Saturday, on the eve of the Oscars ceremony, the actor George Kennedy died. He won an Oscar in 1967 for his role in “Cool Hand Luke”. For people of my generation, he was perhaps better known for what was a less challenging role in acting terms, playing Carter McKay in “Dallas”, in which he spent most of his time fighting with the Ewings for control of both Ewing Oil and WestStar Oil. While “Dallas” was glamorous fiction, it parodies what some people say the oil industry used to be about: aggressive competition and greed descending into criminality. Those days, if they ever existed, are long behind us.
The ethos that must be installed across the industry going forward is one of collaboration—collaboration between the OGA, industry and the Treasury, with the OGA providing the framework for that collaboration. We now have a regulator with the same bite as its counterparts in Norway and the Netherlands. That collaboration must involve industry, building on the significant progress it has made in the past year in reducing operating costs from an average $24.30 per barrel to $20.95 per barrel. Yesterday, at the Southern North Sea conference in Norwich, the ambition of reducing costs to $15 per barrel was stated. One operator, in what I should emphasise was very much an isolated case, explained how it was achieving costs of $7 per barrel.
In this tripartite approach, the Treasury needs to deliver its side of the bargain, providing a taxation framework that shows real confidence in the industry’s long-term future and helps to attract global footloose investment. However, collaboration must not stop there; it must permeate the industry and beyond. Operators must collaborate with operators. That is evidenced by the partnership currently being operated by Faroe Petroleum, Petrofac and Eni Hewett, about which I also heard yesterday.
Trade organisations must also collaborate with one another, which again was evidenced yesterday in Norwich by the signing of a memorandum of agreement between Oil & Gas UK and the East of England Energy Group. Operators must collaborate with their service providers, building long-term partnerships and learning lessons from other sectors such as the aviation and car industries. Small and medium-sized enterprises operating in the sector have a proven track record of driving innovation and achieving efficiencies. Operators now need to work with them.
Finally, the sector needs to work with other sectors, in particular the offshore wind sector, with which it has a great deal in common. The oil and gas industry post-Piper Alpha has a good track record of operating safely in what is a hazardous and dangerous environment. That must never be compromised, but one has to ask: is it necessary to have two separate regimes—one for the oil and gas industry, and one for the offshore wind industry? Going forward, collaboration must underpin everything. It is probably too late for the Budget in under two weeks’ time, but for the autumn statement, consideration should be given to introducing measures that encourage collaboration—for example, tax breaks and incentives to carry out seismic work that can lead to new discoveries.
Alongside the implementation of Sir Ian’s recommendations and the move towards a more collaborative approach to business, changes to the fiscal regime are imperative, not only to get over the immediate challenges the industry faces, but to provide a framework to attract global investment. That is already acknowledged by the Treasury. Its “Driving investment” plan, which came out in December 2014, recognised that substantial improvements in the oil and gas fiscal and regulatory landscape, including a reduction in the overall tax burden, are required for the UKCS to remain globally competitive and to attract international capital.
When the “Driving investment” plan was published, the oil price was around $60 a barrel. Given that the price is now in the range of $30 to $35 a barrel and that the observed impacts of prevailing low oil prices and the depth of the downturn in the UKCS are considerable, those improvements are even more imperative. There are huge pressures on company and project financing, and more job losses and company defaults are a real worry. Further fiscal measures are now required as a matter of urgency to support the industry, and I urge the Government to bring such measures forward in the forthcoming Budget.
The package included in the March 2015 Budget was very much welcomed by the industry and should now be the foundation for further measures. Such additional measures would also help the industry’s supply chain and therefore meet the second principle in the “Driving investment” plan: revenues. In setting further reforms, we must have in mind the requirements of the secondary industries. I would therefore be grateful if my hon. Friend the Minister, along with her Treasury colleagues— I am delighted to see one such colleague, the Exchequer Secretary to the Treasury here today—included Oil & Gas UK’s proposals in the Budget. I will not go through them, because Members will have seen them, but they set out the situation clearly and speak for themselves.
In addition, Oil & Gas UK has requested two non-fiscal measures to be introduced. First, access to finance is a major problem at the current time. That could be overcome to a large degree by the introduction of a Government loan guarantee scheme, which would help companies to access affordable working capital, which is vital for their survival in the downturn. Constraints on expenditure and an increasing unwillingness among finance markets to lend are currently resulting in a liquidity crunch across the sector, which is driving a further downturn in activity.
It is also very important, out there in the real economy in the regions in which we operate, for businesses and their representatives to talk to their banks, to explain their problems and to work with them. The feedback I am getting in East Anglia is that at the moment the banks are being responsible, but in other sectors in the past—whether it was the dairy or the house-building industry—when times have got difficult, the banks have sometimes panicked.
I was at a meeting last week with a local supply chain company, which said it was finding it difficult to get finance and that although a number of banks were saying to Government that they are still lending, they were saying to local oil companies, “We are not lending to oil right now.”
It is very helpful to have that feedback. I raised this at the New Anglia local enterprise partnership oil and gas taskforce meeting last week, and the feedback I got from people was that they had spoken individually to all the banks in the region and that the banks were being co-operative. However, it can, of course, vary from region to region, and that is what we have look out for.
I have talked about the short-term measures. Secondly, in the longer term, the Treasury needs to work with the industry on producing an overall road map for fiscal change. That would include not only the fiscal changes in this Budget, but a longer-term blueprint for further reductions in the fiscal burden as the basin matures. That would help to provide greater clarity for all those working in the UKCS at a time of uncertainty, and it would boost investment and hopefully give confidence to banks. In short, the industry needs its own long-term economic plan.
It is also important that local initiatives are put in place to support people and businesses at this uncertain time. The New Anglia LEP oil and gas taskforce, of which my hon. Friend the Member for Great Yarmouth (Brandon Lewis) and I are members, has developed a package of measures to provide advice and support to businesses and their workforce. The taskforce commissioned research that showed that 26 companies have filed for administration in the Lowestoft and Yarmouth area between April and October 2015 and more than 1,000 people directly employed—that is, directly employed people only—in the industry have been made redundant, with many companies asking staff to take unpaid leave or salary reductions. As a result of that research, the taskforce has agreed a package of measures prioritising two areas.
First, for oil and gas businesses, free initial face-to-face assessments will be provided, followed by, if required, a 50% discount towards a more intensive support package that will be provided by specialist consultants. That will include advice on diversification, restructuring and alternative growth opportunities, as well as on developing business plans. Those discounts will be funded by Norfolk and Suffolk County Councils and by Waveney District Council and Great Yarmouth Borough Council, which have set aside £80,000. In addition, the LEP is modifying its growing business fund grant scheme to support and sustain future business plans, with £250,000 being set aside.
Secondly, those losing their jobs are being provided with support to retrain, find alternative employment or maintain their industry certificates. Assistance will be provided via Jobcentre Plus to ensure that displaced workers are properly supported to access new job opportunities in the local area. The taskforce is also working with local colleges and training providers to ensure access to relevant training courses.
It is important to acknowledge those in the New Anglia LEP and the East of England Energy Group who have worked tirelessly to come up with this package, as well as the four councils and the LEP for providing the funding at a time when their budgets are under great pressure. It is right that such packages are worked up locally, so that they are tailored to the specific needs of those in the local areas, but there is a role for Government. First, they should co-ordinate such initiatives across the country—I understand that Scottish Enterprise is doing something similar, although I am not aware of the position in the north-east and in the north-west. Secondly, if the schemes are a success but the downturn goes on for longer, the Government should look to provide the funds for these initiatives to continue.
If you will bear with me for a few minutes, Mr Walker, I am getting towards the end of my speech. Let me say a few words about the urgent need for a regional plan for the southern North sea, on which the OGA has started work. Sir Ian Wood recommended that regional plans should be developed for the different areas of the UKCS. There is a vital need to do that in the southern North sea, where there are significant potential reserves of gas remaining to be recovered. That is evidenced by the Cygnus find—the largest gas discovery in the last 25 years; work is due to start later this year—and the potential of the Tolmount discovery. With gas continuing to play a key role as the main fuel source for UK electricity generation, this plan is important to maintain security of supply.
Today, gas is very cheap and it is readily shipped around the world in liquefied natural gas form. Seventy per cent of gas is currently imported, but much of it is from countries that have an unpredictable political outlook. However, the gas price is increasingly volatile and we need to have our own domestic source of supply. Although the southern North sea still has significant potential, it is particularly vulnerable to premature contraction and decommissioning. We need to ensure that the existing infrastructure is fully utilised and not placed at risk, and that licences are in the hands of those prepared to invest.
The price of gas used to be closely tied to the oil price. With the rise of shale gas in the US, that is no longer the case, and I am advised that there is now a closer link to something called the “Henry Hub”. That leads one to consider whether there should be a different fiscal regime for gas in the southern North sea. Industry opinion is divided; some say that the fuel should have its own tax framework, whereas others say that would be complicated and that we need to move to a simpler system. On balance, I am coming round to favouring the latter, but I urge the Treasury to look at this issue closely.
Although the southern North sea is a mature basin and, in many respects, we are embarking on the final chapter of oil and gas recovery on the UKCS. In some respects this voyage is a new venture, with a new business model built on a cornerstone of collaboration. Up until now, the big oil companies have led the way in pursuing innovation, efficiency and cost reduction. With the industry in future likely to be made up of a larger number of smaller businesses, a new way of harnessing the drive for innovation needs to be found. The offshore wind catapult has been very successful in promoting innovation and driving down costs. I would be grateful if the Government considered setting up a similar catapult for the oil and gas industry.
In conclusion—I sense I have tried your patience for a little too long, Mr Walker—the North sea oil and gas industry is a great British industry, which has given so much to the UK over the past 50 years. It is currently facing extreme challenges, but it can play a key role for the next 35 years. That key role involves keeping the lights on, providing good and exciting jobs and making a significant contribution to GDP—to Great Britain plc. Three ingredients are required for it to do so: the right regulatory framework—Sir Ian has provided us with that particular framework, which we now need to move forward with—the right fiscal framework and, above all, a spirit of collaboration.
It is an honour to speak under your chairmanship, Mr Walker. I apologise that, having left a Bill Committee to speak in this important debate, I will have to return to the Committee when I have spoken here. I hope that the Ministers and other hon. Members will excuse me.
It is difficult to speak after my friend the hon. Member for Waveney (Peter Aldous), who encompassed so much of what I want to say. I thank him for taking the lead at the Backbench Business Committee to help to secure this debate. My friend the hon. Member for Aberdeen North (Kirsty Blackman) and I were both pleased to support this timely application. The hon. Gentleman’s passion for oil and gas and his great knowledge of the subject were well demonstrated in his very thorough speech. He has left little for us to add, except to express our own passion for our regions and describe how we are affected by the downturn in oil and gas.
I am sure the Minister of State, Department of Energy and Climate Change, has heard, and indeed heeded, many times the points that are being raised today. I thank her for re-establishing the cross-party oil and gas group, which functioned so well in the last Parliament after being established by the then Secretary of State. It helped to promote fabrication in a way that brought jobs to Tyneside particularly, and that was very welcome. I reiterate the appreciation and relief that the group has been re-established. The Minister intends the group to focus on improving the competitiveness of the UK fabrication sector in this very hard climate. I am sure our next meeting with the fabrication forum will be fruitful. The way the hon. Lady chaired the first meeting shows that we will have a busy and productive time ahead.
Cheaper oil at the pumps is welcomed by the majority of people in this country, but the dramatic fall in oil prices is a disaster for industries in places like Tyneside. Twenty years ago, our shipbuilding industry finally closed with the loss of the great Swan Hunter on the Tyne. Many workers were left with no jobs, but others were able to secure a future by transferring their skills to the offshore oil and gas industry. Instead of the building of great oil tankers, we saw with awe the fantastic platforms that dominated the skyline, amazing all who saw them. It was a wonder they ever got off the river, but they did. That was a new era which we hoped would last a long time, but given the way things are, that does not seem likely. I hope there will be some reversal of that fortune.
In my Adjournment debate on this issue just over a year ago, I quoted the then chief executive of Oil & Gas UK, who said at the time of the organisation’s 2015 activity survey:
“This offshore oil and gas industry is a major national asset.”
More relevant than that is the fact that, for each of us taking part in this debate today, the industry has a special relevance to the economic prosperity of our communities. Over the past few years, I have followed the fortunes of the oil and gas industry via the success or otherwise of businesses on the Tyne—companies such as Barrier, W.D. Close, SMD, Shepherd Offshore Services, Wellstream and OGN, the last of which I have worked with most regularly. I will say more about OGN to show how its fortunes mirror those of the oil and gas industry generally.
In 2012, when I asked the Prime Minister to consider tax incentives in the Budget, the workforce at OGN stood at around 1,500. Last year, that workforce stood at 2,500, thanks to a contract for fitting the EnQuest producer FPSO—floating production, storage and offloading vessel. That contract, secured with the help of the cross-party oil and gas group, was completed last March, and sadly, in the last few months, despite valiant efforts by the company to find work, the yard has shed all those jobs. Men and women in my community of Wallsend are out of work, despite being highly skilled.
I take this opportunity to commend the Department for Work and Pensions on the helpfulness of its rapid resource team. The Department commended OGN for letting the team have access to workers long before the nail was in the coffin, with the result that many of the workers have been able to upskill or transfer skills to get different employment. That should be noted in these hard times.
In a letter to the Chancellor in December 2015 about the future of the UK continental shelf, Dennis Clark, the indomitable chairman of OGN—everyone in the business has probably met him at some point—stressed that the way forward was to improve the long-term investment potential of the North sea and that this had to be done by larger operators because smaller ones are struggling. As ever, Dennis believes that there needs to be an overhaul of the tax structure to help North sea operators. In his letter to the Chancellor, he highlighted the fact that in some mature fields like Forties and Beryl, in-field drilling supported by 3D and 4D seismics has resulted in identifying and exploiting new reservoirs. He believes that that could mean there is even more oil than we think in the North sea. He urged pursuing this course of action to be a focus of attention for the newly formed Oil and Gas Authority.
Announcements made by the Government in January will certainly help the industry in these hard times and are welcomed, but the importance of the Government’s support for the industry is strengthened not just by comments from people in the industry such as Dennis Clark, but because of the 2016 activity survey, which was published last week by Oil and Gas UK. I commend the industry’s efforts and success in reducing operating costs and increasing production, as set out in the report, but I am very concerned that the survey outlines the fact that exploration is at an all-time low, with little sign of improvement. According to the survey, this year only £l billion will be approved for investment in new projects compared with £8 billion per year in the previous five years. It can only be described as soul-destroying that, despite efficiencies and resulting successes, because the price of oil has fallen 70% since summer 2014, it is likely that 43% of UKCS fields will be operating at a loss, further deterring exploration and investment.
The UK still has up to 20 billion barrels of oil and, as my friend the hon. Member for Waveney said, can provide a secure source of energy for our country for years to come. That should not be forgotten. I agree with Oil & Gas UK that we must exploit to the full the advantages that come with having a mature province on our doorstep. That must be made known worldwide. Let us exploit our skills, technology and engineering. We cannot waste this resource—that would be a travesty.
The Minister will be aware that Oil & Gas UK has made Budget representations to the Treasury in a bid to help our industry to survive. I particularly note the idea of making loans to enable the industry to have money to invest. Fabricators like OGN in north Tyneside need to see that investment is taking place; otherwise, they will have no hope.
I started by speaking about how the fortunes of the industry are mirrored in OGN. In the last few days, OGN has sent a letter to the unions advising that it will have to market the site. It hopes that it may get a last-minute reprieve by going into the offshore wind industry, because it has the capacity, skills and ability to do that. I know that the Exchequer Secretary to the Treasury, who is here today, has promised to meet OGN to discuss some of the things that are causing it problems there.
It is great that the industry is looking forward; it is terrible that more than 2,000 jobs have been lost in recent months. We cannot even imagine what it is like for people who work in these industries, who were highly paid and usually able to enjoy quite a good lifestyle, being reduced to not having an income and perhaps having to work away from home. At the moment, people are able to work in their local communities, but if they lose that job and are fortunate enough to get another, it could be on the other side of the world. That is a loss socially as well as economically to our communities.
I ask the Minister of State to continue on the road that she has started on, to make the case for oil and gas and to plead with the Exchequer Secretary to listen to the recommendations that have been made by Oil & Gas UK and all the hon. Members who are representing the interests of their communities here today.
It is a pleasure to serve under your chairmanship, Mr Walker. With my fellow MPs, I am pleased that this debate was chosen by the Backbench Business Committee and I appreciate the fact that it agreed that the debate could be held today.
I represent Aberdeen North, which is obviously one of the places most heavily affected by the current downturn. Last summer, when we were first meeting oil companies and talking to industry bodies about what was happening in the oil and gas industry, they were talking about the oil price being “lower for longer” and about being cautiously optimistic about the future. There has now been a shift in the feeling: it feels as though the price will be lower and lower for longer and longer. They are not talking just about being robust at $60 a barrel; they are talking about being robust at $50, and there are even whispers about people trying to be robust at $40. It has become a completely different feeling, even in the few months since the summer, because the global oil price is so unpredictable and it is not something that we can do anything about. One industry leader, when asked the other day what we could do about the oil and gas price, said, “Hope.” That is the only thing that we can do about the price.
There are other things that can be done, though. I want to talk about the situation in Aberdeen and how we are feeling now. I read an article from a couple of years ago that said that about 40,000 people were employed directly in the oil and gas industry in Aberdeen and Aberdeenshire. Aberdeen is a relatively small city; only 225,000 to 250,000 people live there, so if 40,000 are directly employed in the oil and gas industry, that is a massive proportion of our employment.
I grew up in Aberdeen. It was always the case that the dads of people I knew were away offshore, working in the oil industry. Now, people I know are themselves away offshore, or their husbands are away offshore, working in the oil industry. It is every second or third family. The oil and gas industry is not a small employer in the city; it is massive. I was talking to Scottish Enterprise the other day, and it reckons that there have been 10,000 direct job losses in the industry.
Looking more widely, Aberdeen and Grampian chamber of commerce did a survey last November that found that hotel occupancy was down by 15%. The people working in hotels are finding themselves squeezed as a result of the downturn; those are indirect job losses. Housing sales in Aberdeen are down by 14% in the course of a year. Taxi drivers are complaining like crazy—they always complain, but they are complaining particularly about the downturn. One of the local food banks made money by selling fruit to companies. Those companies are no longer buying that fruit because they have cut back on the extras, so the food bank, as well as seeing extra people coming through the door, is suffering on the basis that it does not have the revenue streams that it had before. We are not just talking about direct job losses in the oil and gas industry in Aberdeen; this a real issue for our whole city.
When oil and gas operators were surveyed in November, 85% of them foresaw further redundancies in 2016. This is not the end of the story for Aberdeen; the bottom has not been reached yet. We do not know what the oil price will do in 2016, but we are pretty sure that it will not get back up to $100 a barrel.
The job losses are a major issue, but there are many people in Aberdeen who have never worked in the oil and gas industry. Despite it being so important for our city, there are many people who have never had those high salaries and who have always struggled. Because we had the industry and the high salaries, they have had to struggle against massive house prices and, for example, a pint of beer in a pub in Aberdeen costing much more than it does down the road in Dundee. Having struggled with all those issues, the knock-on impacts from what is happening in the industry now are hitting them even harder, even though they never had the high salary beforehand to back them up. Therefore, this is a very big issue for our city—for our micro-economy in Aberdeen.
I do not want to carry on being quite so gloomy. There are patches of light—good things happening in the industry and in the wider economy in Aberdeen. We are seeing a degree of resilience in Aberdeen. Aberdeen has been through downturns before. It has not been through any big ones in the times that I can remember, but it has been through downturns before; we have suffered before. One big issue that we are struggling with involves those companies that are becoming market leaders in things such as decommissioning. We are now what is called a super-mature field in the North sea and we are getting very good at and ahead of the curve on things such as decommissioning, but there are issues.
The hon. Member for Waveney (Peter Aldous) mentioned the banks. Although the banks say that they are lending, the people from the companies I have been talking to say, “Yes, the banks say that, but they are not actually following through and it is not happening.” There is an issue there. The banks are not lending to the companies, so the companies are in a shakier situation financially, so they are less likely to get money from the banks. If the Government showed confidence in the oil industry and made it clear that they would support the long-term future of the industry, we would get out of the current cycle of banks refusing to lend and then the companies not being so financially viable—and on and on.
The Scottish Government are doing a huge amount to try to inspire confidence in Aberdeen and to make people realise that things are good in Aberdeen. The Scottish Government, along with the UK Government, have signed the city deal, with each putting in £125 million for the city. The Scottish Government are also putting in extra money that will particularly benefit the city. They are putting in £254 million of infrastructure investment, which is additional to the Haudagain roundabout improvements—people who have been to Aberdeen have probably heard about the Haudagain. Also, there is the Aberdeen western peripheral route, which has been on the books—in the pipeline—for an awfully long time. Basically, in Aberdeen we do not have a bypass—our current “bypass” goes through the city. The new road will actually go around the city. It is a huge infrastructure project and it is doing its bit to help the economy and increase confidence in north-east Scotland.
We in Aberdeen have been shouting for many of these infrastructure improvements for a very long time, and now they are finally coming through. I am particularly pleased to see that measure of confidence from the Scottish Government. There has been a slight measure of confidence from the UK Government, I agree, but we would like more. We would like more support for the industry in general and for Aberdeen in particular.
I have spoken about confidence and the effect that that will have on things such as the banks. There are a couple of other issues. What if the big companies decide that the North sea is too difficult? Many of these companies are global companies. They can choose to invest elsewhere; they can choose to put their money elsewhere. That is bad for the UK because the UK does not get the tax take anymore, but something that is a major problem is if people start to decommission too early. If people know anything about the infrastructure of the North sea, they know that if we start to decommission one place, the satellites are scuppered and further out fields are less viable as a result. This is what the maximising economic recovery report was about. If we think about it purely in fiscal and financial terms, it is hugely important to push decommissioning out as far as possible, to maximise the amount of money that the Treasury will take, to increase jobs for the long term and to become the market leader in the supply chain and the decommissioning sector.
What can the Government do about the fiscal regime? We would really like them to look at the supplementary charge and at the tax regime around late life assets, to ensure that assets can be transferred to smaller companies that can prolong the life of the assets to get as much as possible out of the fields before choosing to decommission. Also, any pressure that the Government can put on the banks actually to lend, rather than just to say that they are lending, would be fantastic.
I have another wee ask for the Government although it is not really for either of the Ministers present to answer. Will the Government ensure that the jobcentre gives my guys the correct advice when they walk through the door? There are lots of things going on for people who have been made unemployed in the offshore oil and gas industry. I am sure that my hon. Friends will talk about Scottish Enterprise’s taskforce. Jobcentre staff need to know all that information, so that when somebody walks through the door, they can give them all the information about the taskforce and about where to go for extra training.
Aberdeen has not been in this situation before. We are talking about highly skilled people, some of whom have never been unemployed in their lives. They need to be given the right support because we cannot afford to lose them from the oil industry or from Aberdeen. People are making the choice to go to Dubai and to other countries to support their families financially, but we do not want to lose them and their expertise from this country. We do not want them to have to go to another industry if there is a job opening in the oil and gas industry here. If there is a job opening in renewables—fantastic—we can get them moved to that field and improve our standing in it. We need these people to be pointed in the right direction to make our economy, particularly our micro-economy, as prosperous as possible
Every company and industry body that I have spoken to thus far is cautiously optimistic about the OGA. Everybody says, “It looks like the OGA is going to do the job that it is setting out to do. Let’s see if it follows through.” The Government have backed the OGA and I hope that they continue to do so. We will continue to back the OGA and support it in whatever way we can because its work is vital and it has been very good at listening thus far.
What about the legacy? What happens to Aberdeen? In Aberdeen, we are good at a number of other things. We are getting particularly good at biopharmaceuticals, which is terrible because I cannot spell it—every time I try to write it down, I have a major problem. We are very good at food and drink, and are world leaders in nutrition. Apparently, we are getting very good at big data, which I will have to learn about very quickly because I do not know much about that. There are two world-class universities in Aberdeen. In transferable skills from the oil and gas industry in a city that has been a world leader in innovation, we will be top of the pile when it comes to renewables, especially if the Government support and give investors confidence in renewables in general, and particularly in Scotland.
I appreciate the chance to have this debate and to talk not only about the offshore oil and gas industry, but about Aberdeen, which I cannot help but talk about whenever I stand up to speak.
As ever, it is a pleasure to serve under your chairmanship, Mr Walker, in what will be a brief contribution. I congratulate the hon. Members for Waveney (Peter Aldous) and for Aberdeen North (Kirsty Blackman) and my hon. Friend the Member for North Tyneside (Mary Glindon), who is my very good friend and neighbour, on securing this debate on an important and timely subject. They have made a strong case for the industry; I will concentrate very much on my locality.
Hundreds of jobs in my constituency depend on the oil and gas industry, where times are, to put it mildly, very tough. Sixteen years ago almost to the day in this very Chamber, I initiated a debate on the plight of the shipbuilding and offshore industry on the River Tyne, because there were similar concerns about jobs being lost and an ageing workforce. We feared losing skills but, as my hon. Friend the Member for North Tyneside said, the offshore industry has provided some continuity. The situation at the time was alleviated by the then Government, who placed warship orders on to the Tyne. Of course, that is not an option for any Government when it comes to the oil and gas industry, because no Government procure rigs or jackets. The common theme in that debate, as in this one, was the vital importance of jobs and the concern at the loss of jobs, whether those jobs were in Waveney, Aberdeen or North Tyneside.
As MPs, in our surgeries and postbags, we receive letters and emails often from the wives and partners of men who work in the industry and who have lost their jobs. The importance of jobs was well understood by the former owner of Swan Hunter, Jaap Kroese, who asked me, following that debate 16 years ago, to chair the then new North East Maritime and Offshore Cluster. I am sad to say that he died at the end of last year. Although he was Dutch, he was an honorary Geordie for the way he championed the maritime industries on the River Tyne, and we shall miss him very much indeed. In all the work that was done, his emphasis was, “Can we bring jobs to our communities and can we safeguard jobs in our communities?”
Those involved in the offshore oil and gas industry—those in fabrication and those who work offshore—in the north-east face serious challenges. The decline, as the hon. Member for Waveney said, partly reflects the maturity of the industry in the North sea, but the scale and speed of job losses reflect the collapse of oil prices. The situation requires action now on a number of fronts. In these particular circumstances we need action, but we also need to ensure when we emerge from this period that companies are competitive, so that the North sea remains competitive and we can keep those jobs.
There is a role for the Government. A number of measures in the Energy Bill currently before Parliament are very welcome indeed. In particular, the establishment of the OGA is important. Of course, the immediate opportunity comes with the Budget, where steps are needed to further alleviate pressure and boost investment. I will not go through each of the tax measures—I could not even if I tried—but I was very pleased that, until a moment ago, the Exchequer Secretary to the Treasury, was in the debate. I am sure the industry is talking to the Government, and I do hope the Government are listening.
I want to make one general point and one specific point about the tax framework. It seems that although there have been changes—I accept that the Government have done a great deal to help—the overall tax regime has not really kept pace with changes in the price of oil. It cannot be right that a tax regime with supplementary charges reflects a time when oil prices were higher than the $30 to $35 or so that they are now. I hope the Chancellor has at the forefront of his mind the need to take action to create a tax environment more in keeping with the current situation than the one that prevailed earlier.
A specific area that I hope the Chancellor will look at—and which was mentioned by the hon. Member for Aberdeen North—is the issue of asset transfer. If companies wish to leave the North sea, we need to ensure that it is easier than it is now to transfer assets, whether to companies that are already in place or, indeed, to people who want to enter the oil and gas fields. Sometimes, those are acorn companies. In my experience, they are people who have worked for bigger companies and who see an opportunity for applying technology in a better way. They are welcome additions and we should not put any barriers in their way. If it were possible to transfer decommissioning tax relief with the asset, that may boost activity, and that would come at little or no cost to the Treasury.
If the Treasury is to play its part, so too must companies. Many are trying to reduce costs below the point at which it is necessary to get a profit if oil is $30 a barrel, but that leaves margins very tight indeed. As my hon. Friend the Member for North Tyneside said, if the price of oil remains at its current level for the rest of 2016, almost half of North sea oil fields will operate at a loss, and that simply is not sustainable.
Advanced Industrial Solutions, which I am pleased to say is an expanding company in my constituency, is working hard, particularly on skills training, but also on supplying equipment and components to the oil and gas industry, especially the offshore industry. By working with major companies, it is cutting costs without cutting standards or cutting health and safety, which is the kind of collaboration that the hon. Member for Waveney mentioned at a local level. The company is upskilling workers for a time when the industry recovers—as we hope it will—or at least for a time when oil prices begin to rise again. It is also upskilling workers who have worked in the offshore industry for new and emerging industries such as onshore and offshore wind turbines and the construction industry. Many jobs that can be done offshore are valued in those industries and in construction. My hon. Friend the Member for North Tyneside and I watched people being upskilled to use complicated rope methods of painting and repairing. If people can use those skills offshore on rigs, albeit in a more dangerous situation, they can use them in construction, and on onshore and offshore turbines too. Such skills are very transferable.
Sometimes, the cost of training is paid by employers, but often it is paid either by employees or by former employees who, if they have been made redundant, pay for it from their redundancy or from their own savings. If someone is willing, has worked hard and saved money, and wants to upskill because they want to work hard again, make money and pay taxes, it cannot be right that the course they go on to upskill is subject to VAT. It just does not make sense that we are putting VAT on such businesses. I understand that any Government will say that once VAT is on, it has to stay on, but—this is my plea—we have previously reduced VAT in some situations. I would ask the Government to consider that.
Finally, I have followed carefully what the hon. Member for Waveney is trying to do. I said earlier that my debate was 16 years ago, which sadly makes me an elder statesman, if that is the right phrase—it is simply code for getting on a bit. I am slightly cynical when I hear the word “taskforce”, which is a bit like “action plan”, where the emphasis is on the plan and often not on the action. I honestly hope that he will be successful with his taskforce, and I wish him well. I am interested in the Government’s view on taskforces and whether they favour the establishment of taskforces locally, or whether it is up to local areas themselves and that the Government do not have a view. Should such taskforces be focused on skills? Previously, in 2000, I would be knocking on the door of the regional development agency and saying, “What are you going to do about retaining skills, and how are you going to show the world that the River Tyne is a centre of excellence for shipbuilding, and for the offshore industry, too?” I am not convinced that the local enterprise partnership is as well placed or is set up in that way. Even if it is, I wonder whether the Government will consider extra resources in some areas for taskforces, perhaps based on local enterprise partnerships, because some areas have been affected worse than others.
I reiterate: we need action, and we need action now. We may talk about the price of oil, about millions and billions of barrels left in the North sea, and about billions of pounds of investment, but ultimately it comes down to jobs. We have to be doing, and be seen to be doing, everything we can to safeguard those jobs, because they are some of the most highly skilled and dangerous jobs, and they are done by some of the most hard-working people I know.
It is a pleasure to serve under your chairmanship and to speak in this debate, Mr Walker. I am the Scottish National party Member for Livingston, which does not have an obvious connection with the oil and gas sector, although we have some businesses down the supply chain, and many of my constituents work in the oil and gas sector, as do people across the country.
I spent the last three years of my career before coming to this place working in the oil and gas industry in Aberdeen. I spent seven years of my working career in Aberdeen and the north-east of Scotland, so it is an area and an industry that is close to my heart. I will take a little walk down memory lane, as it is appropriate to the topic. I spent the last three years of my career in the service sector. I worked for a year in a subsea company and then for an asset integrity and construction company. The last company I worked for was the biggest supplier of people power and scaffolding offshore. From speaking to many of my friends and former colleagues, many of whom have lost their jobs, I know the impact of job losses on family life and on communities, which is substantial. We have heard extensive information about the industry today, but it is always important to remember that there are lives behind every job loss and every company shutdown, but there is also hope, because there are so many people in this industry.
We talk about the UK’s exports and how we are not doing as well as we could, but we do not just export products and innovations; we export people. I have travelled to a number of countries and cities across the world, and in every oil and gas city, whether it is Houston, Abu Dhabi, Dubai or Perth, I hear an Aberdonian accent, which is a fact. Aberdonians have worked for generations in the oil and gas industry, and they have been exported all over the world. Scotland has a long tradition of innovation. I think it was Arthur Miller, the American writer, who said that Scotland invented the modern world. Well, it is true that Aberdeen and the people of the north-east of Scotland pretty much invented the oil and gas sector and many of its technologies and innovations.
I worked with one guy in my last company called Jim Chalmers, who worked on the hook-up of the Brent Delta, which was the platform for which Brent crude was named. Before I left, we were working on the decommissioning of that platform. He has literally spent his entire career in the sector and in the industry, and he has some frankly incredible stories to tell. He also lost many friends in the Piper Alpha disaster, which I will mention later.
On global markets and pressures, we have seen market oversupply and a trading war between shale oil and the middle east. That has put pressure on oil, causing it to drop to a 12-year low, although it is bouncing back somewhat. Lower and lower for longer and longer, as my hon. Friend the Member for Aberdeen North (Kirsty Blackman) said, will be the norm. I have been to many Oil & Gas UK events over the years, and the business breakfast I went to last week was one of the most entertaining and informative. An independent analyst, Beth Mitchell, talked about some very dry and technical information with significant wit and flair, so I pay tribute to Oil & Gas UK not just for the way it presented its activity survey but for the way that Beth presented the information. One thing the activity report drew on was the challenges and pressures put on the shale industry and how the industry has responded in the US. The industry has developed new innovative technologies. It has gone back and re-fracked wells and has been able to operate at a much lower price than anybody had expected, which has been causing additional pressure. She highlighted how the oil and gas industry could learn from that.
As we approach the Budget, I follow everyone in saying how important it is that the Government listen. One key thing that happened in a recent Budget announcement was the cancellation of the carbon capture project, which was a huge blow for us in Scotland and the north-east. I understand that the Government have their books to balance, but we are looking to maximise recovery and to do all we can for this sector, for the energy industry and for innovation and new technologies. It was a hammer blow to the north-east of Scotland and to Scotland’s industry, and we urge the Government to reconsider this technology and the removal of the investment.
I have spoken briefly about innovation. I will touch on a couple of innovations with which I was directly and personally involved. One of them, at the subsea company I worked for, was called the autonomous inspection vehicle. For those who know what an ROV is—a remotely operated vehicle—an AIV is tethered to a boat, and it goes around inspecting in areas too dangerous for divers. The company where I worked developed one that was tetherless. It was basically a remote-controlled car under the sea, which was incredible technology. The company put in a lot of investment, and the company with which it had partnered, SeeByte, developed the technology. SeeByte was a spin-off from Heriot-Watt University.
Interestingly, just before I left, I got news that SeeByte, which had been a Scottish firm, would be sold to an American firm. That was particularly disappointing, because we see it over and again: companies in Scotland and the UK get to a certain level, and there is just not enough angel or equity investment to get them over the line to the next step, so they go to, or are bought by, American firms. It was disappointing to see that happen. I know that there have been changes to innovation grants. We have gone from grants to loans, and we are now hearing companies talking about moving abroad. That is disappointing, and I urge the Government to rethink.
The other technology was called ERBAS, or extended reach breathing apparatus system. A couple of guys in a workshop came up with a piece of technology to help the guys—they are largely men—who go down the leg of a platform. For those of us who cannot imagine it, I have a friend whose father was one of the last coal miners in Scotland, and then went on to work in the oil industry at Sullom Voe in Shetland. He said that although he had been in a roof fall in an underground coal mine, he had never been as scared as he was going down the leg of a platform. The technology that the company developed was to stop those guys having to carry their air. Instead, they could make a free descent, plugging in as they went, so they could breathe going down and coming back up. The company was investing in the technology and trying to get it to take off, but was unable to get external investment.
Those are just a couple of examples, but they are significant. Companies across the oil and gas sector are developing similar technologies every single day, and we need to do as much as we can to support them and their opportunities.
The hon. Member for Waveney (Peter Aldous) and my hon. Friend the Member for Aberdeen North (Kirsty Blackman) have discussed access to finance. My hon. Friend is making a powerful point about how innovation requires financing. Does she agree—I am sure she does—that access to finance is critical to maintaining that drive for innovation?
I absolutely agree. It is critical that we send the right message not just to the industry but to the markets that we are there for them and will invest in the technology. Again, as our exports drop, we must consider how we can do better. This is an area where we are leading the world, and we must invest.
Another innovation developed was the rebreather. As I am sure many Members remember, there was a series of helicopter accidents in the North sea, and in August 2013, a helicopter went down off the coast of Shetland. I was part of the emergency response team for my company at the time; sadly, we lost someone in that accident. That experience changed me and everybody else involved, and I will certainly never forget it, but the industry’s response—we had the support of Oil & Gas UK, the police and all the various bodies—was incredible. It showed the industry’s robustness and ability to respond. Ultimately, getting in a helicopter is pretty much the only method of transport for people who work offshore. The industry’s response—developing a new breathing system and new ways to get people offshore—was important, because the accidents put significant pressure on production and on the ability to get people out and back safely.
I will touch briefly on the apprenticeship levy, which was introduced by the UK Government to deliver 3 million more apprenticeships. We welcome anything that can deliver more apprentices. However, there is a lack of clarity on the issue and a concern in the industry, which I have raised and will meet the Minister about shortly, regarding double charging. Some parts of the industry are already paying a levy to the Engineering Construction Industry Training Board for apprentices.
I urge the Government to do all they can to ensure that the levy is clear, concise and simplified, and that it delivers what it promises. Scottish Ministers have had concerns about the lack of consultation, and they are still not clear how the new body being created will work. It is important that people do not end up being put into apprenticeships that are not real apprenticeships but low-paid jobs. We must do our best to get young people into this important sector and many others. I welcome the Minister’s willingness to meet me, and I thank the Aberdeen and Grampian chamber of commerce, which has done a lot of work to bring together people in the oil and gas sector on that issue.
Oil & Gas UK’s operating expenditure report for 2017, the activity survey, says that the industry has made substantial progress. We must commend it on reducing operating costs, with total operating expenditure falling by around 15% to £8.2 billion. The industry has the wit and will to do so. Clearly, innovation comes not only in technological form but in terms of expenditure. Under massive pressure, the industry has led the world in innovation. We must do all that we can, in terms of the tax regime and the field allowances that Oil & Gas UK has called for, to reform the special taxes paid by the industry, to promote investment and maximise capacity during the downturn.
Other hon. Members and I recently met the Underwater Centre in Fort William, which trains divers across the globe, particularly in the UK and Scotland. We must remember that diving is one of the most dangerous jobs that anybody can do. The Underwater Centre told us that the average age of a diver is now more than 50. What is happening is that although people are still coming through for training from Scotland and the UK—less so globally—the centre is seriously concerned that when the upturn comes, not enough people will have been invested in and not enough divers will have been trained, and we will get back into the same cycle that we have seen before, in which only certain people have certain skills, and companies must pay a fortune for them. I saw it happen in the industry when I was there: people were paid phenomenal salaries for specialist skills, because we had not had the foresight to invest in training.
I come to the work that the Scottish Government have done with Scottish Enterprise and Scottish Development International. I know from having tried to open an arm of a business in Norway—and succeeded—how important Scottish Enterprise and SDI were. They gave us support and financing to attend, for example, the Offshore Northern Seas conference in Norway and get business, and helped us understand how to operate in a different country. The Scottish Government have been doing everything that they can to support the industry in its time of need. First Minister Nicola Sturgeon set up a jobs taskforce in January 2015 in collaboration with Scottish Enterprise, chaired by its CEO Lena Wilson. It is only fair to pay tribute to Lena Wilson, who has done a huge amount of work on the issue. She has worked tirelessly with the Oil and Gas Authority, Oil & Gas UK and many others.
The Scottish Government are also running an “adopt an apprentice” scheme through Skills Development Scotland to re-employ any modern apprentices in the industry who have lost their jobs or apprenticeships. On 1 February 2016, the Scottish Government announced £12.5 million for oil and gas innovation and further business support, including £10 million in Scottish Enterprise funding to help reduce the risks associated with carrying out research and development and enable access to specialist exports to help kick-start innovation projects in Scotland.
Finally, I would like to make a point about health and safety or, as it is often called in the oil and gas sector, HSSE or HSSEQ—health, safety, security, environment and quality. The right hon. Member for Tynemouth (Mr Campbell) also mentioned it. At a time when costs are under such huge pressure, it is important that health and safety are not compromised. I have seen the results personally, and had to deal with incidents. The industry has come a long way since Piper Alpha. It is hugely innovative and it continues to invest, but it is important that we send the message that health and safety must not be compromised in these difficult times.
In conclusion, there is a huge amount being done by Government, by industry bodies and all across the sector, including by companies and individuals, but we have to send the strongest message possible that this industry has a prosperous future and that we need to do all we can to support it. The oil and gas industry matters and the message that we have to send to our banks and to investors is that it is open for business and is here to stay.
It is a pleasure to serve under your chairmanship, Mr Walker.
What can I say that has not already been covered today? Many people who work in the oil and gas sector live in my constituency of West Aberdeenshire and Kincardine, and those in my constituency who do not work in the industry almost certainly have a family member who works in it. I have close friends and family who work in the industry, for Shell, KCA Deutag, Technip, Conoco, Total, Stena and shipbrokers attached to the industry, or even in Aberdeen harbour itself. I said in my maiden speech that I would argue for better support for the industry, and along with my colleagues from the north-east and my hon. Friend the Member for Livingston (Hannah Bardell) I have done so and will continue to do so.
The recent drop in oil prices that has been described today has had a big impact in the north-east. It has affected not only those working directly in the oil and gas sector but those working in hospitality, leisure, tourism, food and drink, and many more. At one time—indeed, very recently—in Aberdeen, it was said that it was cheaper to get a hotel room in the city at the weekend than it was during the week, because of the number of business people staying in Aberdeen during the week.
That is why I welcome the recent investment that has been made in Aberdeen city and shire through the city region deal, and additionally from the Scottish Government. I am particularly pleased about the money earmarked for key projects such as the Laurencekirk junction in my constituency and—to my further delight—for broadband infrastructure.
I also welcome the support that has been provided through the Energy Jobs Taskforce and the Transition Training Fund to those who have lost their jobs, which will allow oil and gas workers to retrain as teachers in STEM subjects—science, technology, engineering and maths. Local institutions in the north-east are also pitching in to lend their support to the sector, with unemployed oil workers being offered a 20% discount on energy-related postgraduate courses at Robert Gordon University.
It has been said that there is a moral imperative to help the oil and gas sector, and I agree with that. Oil and gas workers, particularly those who work offshore, have to spend weeks at a time away from their families, living in one of the most inhospitable places that I can think of. That puts considerable strain on families and communities. These workers have to take a survival course just to go on their commute to work and, as has been said by my hon. Friend the Member for Livingston, there are often accidents on those journeys.
Consequently, when we ask for support for the industry, we do so because we recognise the sacrifices that are made by the men and women who are on the rigs, day in and day out. We recognise their hard work, which has brought billions to the UK Treasury. So, when the industry faces hard times, as it does just now, it should be able to expect support from the UK Government to get it back on its feet and to restore confidence in it.
The oil and gas industry is incredibly innovative and entrepreneurial, with whole businesses in the supply chain being created out of simple solutions to all manner of problems faced by the industry. Last Friday, my hon. Friend the Member for Aberdeen North (Kirsty Blackman) and I visited an international company that started as an idea in a garden shed. It is that kind of company that make the oil and gas industry so unique and so important.
I cannot speak about the oil and gas industry in my constituency without mentioning Westhill, which is the global centre of excellence in subsea engineering. It is also known as “SURF City”, which refers to “subsea umbilicals, riders and flowlines”—I do not really know what that means either—and it also does a lot with remotely operated vehicles, as mentioned by my hon. Friend the Member for Livingston.
The subsea sector has pioneered game-changing technology and innovative thinking during the past 40 years. The theme for this year’s Subsea Expo was “Time for Transformation”, which aimed to recognise how the industry needs to change, including considering what can be done more simply and more effectively.
The last day of Subsea Expo was about encouraging young talent in the industry. Led by OPITO, which is the oil and gas skills body, the “Energise Your Future” campaign inspired secondary school students to engage with the oil and gas industry and find out more about the opportunities available within it. That campaign, along with initiatives such as the Energy Schools Challenge, allows young people to gain an insight into the industry, show off their general knowledge and get heard on the great Northsound 1.
Finally, the Industry Awareness Week, which will take place in Aberdeen in June, follows the Oil and Gas Authority’s call-to-action paper and allows young people aged 16 and over to engage with different areas of the oil and gas industry, showing the next generation the career choices that are available in the industry. As the oil and gas industry looks to become more innovative and efficient, it may be that it is the younger generation who will come up with the solutions to ensure that it survives and thrives.
I call Mr McCaig to speak.
Me? Right. [Laughter.] Thank you, Mr Walker, for calling me to speak. I was not quite expecting to be called and there are other people in the room who I assumed were speaking before me; clearly, I assumed wrongly.
I commend the hon. Members for Waveney (Peter Aldous) and for North Tyneside (Mary Glindon), and my hon. Friend the Member for Aberdeen North (Kirsty Blackman), for securing this debate at the Backbench Business Committee. One of the unique frustrations of having the privilege of being my party’s Front-Bench spokesperson in this area is that I could not add my name to those of the Members who secured the debate, such is the importance of this industry to my constituency, to Scotland and—as we have heard today—not only to large regions of the United Kingdom but to the United Kingdom as a whole.
We have heard from the three key areas: Aberdeen; north-east England; and south-east England. We have heard of distinct challenges facing these areas and we have heard accounts in different accents from the different areas, but let us be clear that those of us here who represent these areas speak with one voice about what is required.
I add my backing to everything that has been said about support for the industry. For all of us who represent constituencies with an oil industry, whether job losses in the industry are in Aberdeen, East Anglia or the north-east of England, we all feel them. They are hugely damaging to communities and it is incumbent upon us to do everything we can to secure the bright future that I believe this industry has; with the right support, I am absolutely sure that it will have a bright future.
The hon. Member for Waveney made an absolutely superb speech to kick off this debate, covering the issues in great detail: the challenges; the opportunities; and the solutions that exist. Let us be clear—the Government do not have the silver bullet that is the cure to the industry’s ills, but they have a significant remit in terms of tackling those ills.
There are three key areas around which there are challenges facing oil and gas. The first is price, which we can do nothing about. The second is the industry’s costs, which the industry is doing its bit on; it is doing it well, but that will result in job losses as money is taken out of the system. Nevertheless, that process is required to get the industry to that bright future. And the third factor is tax.
It may seem slightly perverse that at a time when companies are not making profits and when taxes are not flowing into the Treasury that we should be calling for tax cuts, but it is precisely at this time that we need to call for tax cuts and it is at this time that they will not come at great expense to the Treasury. It will not cost the Treasury anything, or it will only cost the Treasury little, to make tax cuts, but the benefit of making them will be substantially felt in the wider economy, as they will support employment and unlock the finance that we have talked about, which in turn will drive the innovation to support our supply chain in delivering the changes, the innovation, the skills and the expertise that this industry is already world-class in and world famous for.
[Philip Davies in the Chair]
What is at stake here? As we have heard, the industry has produced 42 billion barrels. The reasonable estimate is that there are another 20 billion barrels left. Even if we do nothing, a number of those barrels will be produced; the investment has gone in and the existing platforms will continue to produce. The projects that are in development at this stage will happen.
However, a considerable amount of those reserves that are left in the North sea might not be extracted, and if they are not extracted the cost will fall upon us all. There would be a loss of jobs, particularly in the areas represented by those of us who have spoken today. That would have a knock-on impact on the wider economy—the supply chain that stretches the length and breadth of these islands.
Specifically on the point about the barrels that are still to be extracted, does my hon. Friend agree that some of them are in more difficult types of field and so are more difficult to extract? The innovation, the research and development and the funding towards that are therefore hugely important for those fields.
I agree wholeheartedly. The make-up of the North sea is different from what it was and what has gone past. As well as the innovation and expertise, there is also the infrastructure that is already there, as a number of Members have mentioned. Once that is gone, there are fields that will go from being marginal on the positive side to being marginal on the negative side or just entirely uneconomic.
Returning to the point I was making on the missed opportunities, every single barrel of oil that we do not produce from the North sea we will need to get from somewhere else. We import oil and gas, and we should not underestimate the importance that being an oil producer has for the UK’s balance of payments, which, frankly, are not great as it is. If we have to rely more on imported oil and gas for our supply, it will further exacerbate that issue. If we miss the opportunities to further develop and support the supply chain, the ability to provide the project management, skills, expertise and technology will go with it as oil and gas is exploited in other, perhaps more favourable basins. The prizes are clear: jobs, energy security and support for our balance of payments and exports. Those huge prizes are there, and if the industry is given the right support, they can and will be obtained.
The Prime Minister has talked about building a bridge to the future, and that is necessary and required. The same turn of phrase has been used by my colleague, the Scottish Government’s Energy Minister, Fergus Ewing. We have left a period of very high oil prices, but as day follows night, oil prices will go up. None of us can predict when that will be, but at least until now it has been the case that they have always gone back up again. The difference in supply and demand that we are talking about is not huge, but the impacts that that has over a sustained period of time change the price and make it far more volatile and far lower.
It is a curious situation, but Aberdeen is probably one of the few places in Europe where the local radio stations tell their listeners what the oil price is. At the end of every bulletin, the newsreader will say something like, “Oil trades at $36 a barrel”—folk are happy with $36 a barrel, because it is better than the $29 a barrel it was at. That is strange, and on the face of it that seems like a slightly useless snippet of information, but it signifies how important the industry is to the city that I am proud to represent.
What would a tax cut do? It would provide the clearest signal that the Government can offer that they believe in the future of oil and gas and will do everything they can to ensure that that future is realised as well as possible. We are talking about a multibillion pound investment in a platform 40 or 50 miles out into the North sea, and that is a significant investment. That investment is likely to have a lifespan well in excess of 20 years—potentially, it is 30 to 40 years. In the time that that field will be looking to make its money back, the oil price will go through many ups and downs, but when many international companies are looking across the globe at where to invest their ever-shrinking piles of capital—the oil industry globally is facing a crisis of investment—we need to be at the most competitive we can be. Part of that is the skills, innovation and expertise that I am absolutely certain we have, but that change in the headline rate of tax over the lifespan of a field can put the decision from being, “We do not proceed,” to, “Yes, let’s press the button and go ahead and develop this field.”
Reducing the headline rate of tax is the clearest single way that we can boost the efforts in exploration and in developing the fields that we know about, and it will provide the clearest way forward on the bridge to the future. It will require people to invest. Whether that is companies using the strength of their balance sheet—some are doing that, buying up other operators and such like—or whether it is borrowed money, if we can de-risk the investment decision as much as possible, there is a greater chance that someone will invest that money in the UK continental shelf, as opposed to one of the other basins.
Does my hon. Friend agree with the assessment of Oil & Gas UK that to transform the basin, the UK continental shelf needs to become the most attractive mature oil and gas province in the world in which to do business? That is not just one of the most, but the most attractive place to do business.
I agree with my hon. Friend and Oil & Gas UK on that. The North sea, particularly at Aberdeen, benefits from being the best place to live to work in the oil and gas industry, but it needs to be the best place in terms of the assets and the tax regime.
Does my hon. Friend also agree that another reason for having the best possible tax position is that the existing companies, particularly the smaller companies in the North sea sector, are under threat from the international credit rating agencies that, since Christmas, have been downgrading them? That worsens those companies’ ability to raise capital. Anything that puts confidence into the companies and keeps their credit ratings high gives confidence for the longer term.
Yes, absolutely. The international creditworthiness of the companies is fundamental to their access to finance. Speaking to the financial providers and asking that they look favourably on the sector because it has the support of Government would have an automatic benefit for their creditworthiness. Were we to do that, it would be a win-win in the clearest sense.
We should be looking to do an awful lot more exploration, and reducing the headline rate of tax is the best way of doing that. There is undoubted potential to the west of Shetland and in the Atlantic margins, but we should not give up on the core parts of the North sea, whether that is the central North sea or the southern North sea. I met with representatives of Statoil earlier this week, and they were discussing a field where they have found 2.8 billion barrels of oil and gas. That is next to the Oseberg field in the Norwegian sector, but it is in one of the most heavily explored areas of the Norwegian continental shelf. The exploration that happened in large parts of the UK side of the line happened a long time ago. The advances, whether those are in drilling technology or seismic technology, mean that we should be looking to go back around some of the old ground to see what we have left there. There is a chance that there will be significant finds, and we need to ensure that that exploration is properly incentivised, so that the companies going out to look for oil and gas get as big a return as possible. That will make it economically viable.
The asks are on tax and access to finance, as we have heard. There is a key point on the transferability of tax liabilities when it comes to decommissioning. The ability to bring new players into the market is important. Each time there has been a downturn in the North sea, there has been a reconfiguration of the companies operating, and largely speaking that has been positive. We have gone from the big US companies to the majors to the middle-ranking players, and we are perhaps looking to go to smaller players still. Those at the cutting edge of innovation are the smallest companies. Their bread and butter is making the most of ageing or smaller fields. They can devote their time, expertise and capital to doing that and getting it right.
Finally, I want to talk about Aberdeen. It has felt the impact, and my hon. Friends the Members for Aberdeen North and for West Aberdeenshire and Kincardine have touched upon the impact on our constituents. It has been significant and for many of them it has been painful. However, on the investment made by both Governments, the city deal shows proper collaborative working. Although I am disappointed that it is not bigger, there is no politician who has ever represented anywhere ever who has not wanted more from the Government when it comes to financing. I recognise it is a significant commitment. The work to establish the oil and gas technology centre is a smart use of money and builds on the expertise that is already there within our universities, making sure that we make that box a little bit more clever.
Investment in infrastructure in Aberdeen is hugely important. When we discussed the issues of oil and gas a year or more ago at the beginning of the downturn, the previous head of Oil & Gas UK said that Aberdeen was part of the problem in terms of the competitiveness of the North sea and in terms of our infrastructure, both physical and digital. Steps are under way to put that right, but we cannot rest on our laurels, and we have to up the pace of investment in infrastructure to unleash the potential that Aberdeen has.
There has been much talk about the tax regime. Again, we welcome the efforts made in last year’s Budget. I read this morning that the head of Oil & Gas UK had described the tax cuts as “so last year”, but I think the headline writer has taken a bit of a liberty because, having read the article, I am disappointed to say that she did not say that. However, because she did not, I shall. What was done, although important, was done last year; there need to be efforts this year. The Budget is coming upon us. It was welcome that a Treasury Minister was here for the opening remarks; he has not missed much by not staying to hear what I have to say. I know the Minister of State, Department of Energy and Climate Change, understands the industry and is well regarded there. I hope that she is having conversations with her colleagues in the Treasury around the same issues; I would expect nothing less.
Time is of the essence. We are at a crossroads here. There is a future for the North sea, and the Governments in Westminster and in Holyrood should make every effort to make sure that that future is the brightest possible. That requires action in the Budget and I very much hope that we will not be disappointed.
I, too, congratulate the hon. Member for Waveney (Peter Aldous) and my hon. Friend the Member for North Tyneside (Mary Glindon) not only on securing this important debate, but on conducting it with such evident good sense. That is not something I always experience on occasions such as this, but everybody in the debate this afternoon has spoken the most extraordinary good sense about the circumstances of the North sea and its future, and what our imperatives should be over the next period to make sure we get the best possible out of the North sea for the long-term future.
As my hon. Friend the Member for North Tyneside and my right hon. Friend the Member for Tynemouth (Mr Campbell) have emphasised, this is about jobs, about UK plc for the future and about the question of investment in a smart and different way that recognises the different realities of the North sea. It is about efficiency and making sure that the North sea remains a really good place to invest in because it works to the best of its capacity and ability for its own future. As hon. Members have reflected, circumstances are different now and will probably always be different. So we are not just talking about a circumstance of the moment; rather, this is something we need to think about for the much longer term.
I am not remotely as well versed in “Dallas” as the hon. Member for Waveney, but I recall that one particular series turned out to be a dream and they got on with business in subsequent series. That is not where we are now as far as the North sea is concerned. Obviously, we face circumstances right now in which, as hon. Members have reflected on, Brent crude is trading at the mighty high price now of $36 a barrel, up from $29 just recently, but it was $50 or so before the new year and much higher than that before then. Many industry experts are stating that that circumstance, albeit with some changes, is likely to remain with us for a long time to come. It is not thought likely that we will see sudden, volatile spikes and rising prices—that it will all turn out to be a dream and we will be back to business as it was. It is a different series of circumstances.
There is a second set of circumstances. The North sea is indeed a mature basin. That does not mean there is not a lot to do, not a lot to find, and not a lot to exploit. However, the reality is that we are two thirds to three quarters of the way through what there is in the North sea, and what will be there for the future is likely to be of a different order from what has been there in the past. A recent Oil & Gas UK report looked at the number of marginal fields that were discovered some time ago and are still there waiting to be exploited, but which are not at the moment likely to be exploited, because there are infrastructure problems in terms of access to those small and marginal fields—there are most certainly considerable investment problems in getting people to invest in and exploit those fields in the way they should be over the next period. It is likely that the 300 discoveries that Oil & Gas UK talked about—mostly of under-50 million barrels of oil equivalent—will be followed by other small discoveries.
The hon. Member for Aberdeen North is right that it is possible that there remain considerable discoveries within the areas that have already been exploited. I think it is possible, but it is probably more likely that there will be a large number of much smaller discoveries. We have to be clear about how we go about exploiting and supporting them, and making sure we get the best out of them over the next period. The hon. Member for Waveney emphasised that collaboration is absolutely essential over the future period. The assumptions made some while ago about who should do what to whom in relation to the North sea will be different. All sorts of collaboration will be needed, in equipment, infrastructure, joint working and standardisation. A whole range of things will be necessary to ensure that exploitation can be undertaken in the best possible way.
That also means something else—something that my right hon. Friend the Member for Tynemouth mentioned. He emphasised the question of asset transfer and how we should make things as easy as possible when existing assets have been under-utilised, or even when people have decided they no longer want to be part of the process. Not only should it not be difficult for asset transfers to take place; there should be mechanisms to make a transfer as smooth, efficient and productive as possible, so that the collaboration proceeds in the best way.
With a very mature field, there is the inevitable issue of decommissioning, which the hon. Member for Aberdeen North mentioned. On the one hand, bearing in mind that there is about £35 billion to £50 billion of decommissioning to be undertaken in the next period, there may be a temptation to say, “That is a new industry in its own right; let’s all get going on decommissioning. It will be important for jobs.” It will be important for jobs, but if there is an emphasis on decommissioning instead of the collaboration necessary to secure the exploitation of the fields in the next period, we will live to regret it fundamentally. That is precisely because, as the hon. Lady said, we have the benefit in the North sea, particularly in relation to exploiting additional small fields, of a mature infrastructure, which can come to the aid jointly of a number of the new discoveries and explorations. If in the mean time we decommission the nodes that would lead to that potential support, we will not just take away the installations; we will shoot ourselves firmly in the foot as far as future discoveries and activities are concerned.
I welcome what is being done under the aegis of the Oil and Gas Authority, which is being set up in its final form under the Energy Bill, towards ensuring that the process works well and that there will be proper consideration, before decommissioning is undertaken, of alternative uses for that infrastructure, and not just in future exploitation.
On the point about decommissioning versus future exploration, the hon. Gentleman might like to know that Denmark has gone for the future development strategy, and this year had a successful seventh round of issuing new licences for prospecting in its sector of the North sea.
I thank the hon. Gentleman for that information, which emphasises what the prospects can be if the process is undertaken carefully. I do not say that there should not be decommissioning, because clearly there will be a substantial amount to undertake, but it should be undertaken in the full knowledge of what is in store if it is not done carefully and of whether there may be different uses in future for elements of what is in the North sea, particularly for carbon capture and storage and gas storage. The infrastructure could assist with that in the future, establishing jobs and skills for the long term, when different circumstances may apply.
The theme that has come out of this afternoon’s debate on the future of the North sea is collaboration. As for what we and the Government should be doing, what has emerged is that support needs to be given now for careful investment in collaboration, and for establishing the circumstances for a bright future in the North sea, in the context I have set out. One of the investments that the Government have already considered is the question of joint seismic work for possible explorations, whose results will be publicly available—a point that highlights collaboration in exploration for the future. Investments and assistance with that approach in mind seem to me to be the most important way forward.
In the light of the good sense and harmony that have prevailed this afternoon, I should perhaps not venture down this route, but I wonder whether I should remind the House that as late as 2011 Her Majesty’s Treasury imposed a windfall tax on North sea oil and gas, by putting up the supplementary levy from 20% to 32%. One thing I must say to the Treasury about future arrangements and assistance for the North sea is: “Don’t do that ever again.”
I was a relatively new Member at the time and remember distinctly the unsettling impact that that measure had on the industry, because it came completely out of the blue. This is a risky business anyway, so it really knocked confidence. To be fair—I remember exactly what happened—the Treasury got the message from that very clearly. I remember attending the conference in Aberdeen that September, and the present Secretary of State for International Development, who was Economic Secretary to the Treasury, was surrounded by people from the industry. She brought the message back here, and it has been here ever since. We need to build on the new regime that we have had since then.
I thank the hon. Gentleman for that intervention, which reminds us of the circumstances in which that began and the lessons learned fairly early on. Certainly, over the past year or two the Government’s activity and their approach to taxation and investment in the North sea show that the lesson was taken on board. I just want to make sure that we build on it. We should bear in mind the need for investment, to bring new players into the field and ensure the longer-term certainty and security of those investments for the future. Perhaps some kind of floor and cap investment arrangement might be undertaken, whereby, should volatility return to the North sea, there would be guarantees for the Government and, if it does not, there would be guarantees for the investor.
We need to think about new forms of investment for new times in the North sea to make sure that its long-term legacy will be that it did its best for UK plc, both for the jobs and skills that now exist, which it is vital to retain, and in making sure that the UK was fuelled as well as possible. I hope that it will be entirely uncontroversial if I conclude by saying that we are engaged in a joint enterprise that it is in all our interests to get right.
It is a great pleasure to serve under your chairmanship, Mr Davies. I echo the hon. Members for Aberdeen South (Callum McCaig) and for Southampton, Test (Dr Whitehead) in saying that the good and unusual thing about this debate is that we are all on the same page. We all absolutely agree that the oil and gas industry is vital for the United Kingdom. It is currently in great difficulty, but we are all united in our determination to do everything we can to see it get through this period and continue to thrive.
I was slightly concerned to hear the hon. Member for Southampton, Test raise the question of joint enterprise and mention “Dallas” in the same speech. We will of course all remember the question, “Who shot J. R.?”; I would not like to think that there was any joint enterprise whatever.
I should make it clear to the Minister that some of us are not old enough to remember “Dallas”. [Laughter.]
I take that extremely personally. That is going to cost the hon. Gentleman chocolate raisins in our next debate—he knows what I mean. I am watching him very closely.
Like other Members, I was delighted that my hon. Friend the Exchequer Secretary to the Treasury was able to join us for much of the debate and hear the views of several Members on the needs of this important sector. The North sea is a mature basin, yet it is still meeting the equivalent of around 65% of the UK’s oil demand and 55% of its gas demand. As many Members have said, there is no doubt that oil and gas will remain central to the UK’s energy mix as we make the transition to a low-carbon economy in a cost-effective way for consumers, so investing in domestic oil and gas production is essential. It helps to reduce our reliance on energy imports and provides a significant input to our economy, supporting hundreds of thousands of jobs directly and indirectly.
As all speakers have pointed out, over the past year oil prices have continued to fall, dropping to below $30 a barrel earlier this year. The impact of the fall on the industry was reported last week in Oil & Gas UK’s annual activity survey, which also indicates that investment in new projects has fallen from approximately £8 billion a year over the past five years to an expected £1 billion in the coming year, and that the number of wells drilled to explore for new reserves is low. It is therefore vital that industry and Government step up and respond to the challenges facing the industry.
I assure all Members that the Government are committed in their support for the industry and have already made significant changes to the fiscal regime. In the March 2015 Budget, the Chancellor introduced a £1.3 billion package of reforms, including reductions to headline rates of tax, a new investment allowance and £20 million of funding for seismic surveys to support exploration. In fact, no other Government have made fiscal changes as extensive as the UK’s in response to falling oil prices. Both the Government and the Oil and Gas Authority will continue to listen to the industry’s views on further reforms in this area, but, as the Wood review made clear, fiscal changes are not the only solution to the issues the industry currently faces.
Several Members, including the right hon. Member for Tynemouth (Mr Campbell), spoke about the need for fiscal measures to be taken in the next Budget. I hope that he and others were reassured by the presence of my hon. Friend the Exchequer Secretary. The changes announced in the 2015 Budget were obviously significant. Several large projects have already gone ahead as a result of them, such as Maersk’s Culzean project—an investment of £3 billion in the UK, supporting 6,000 jobs—and BP’s eastern trough area project, which is a £670 million investment. In response to the March 2015 Budget package, the then CEO of Oil & Gas UK, Malcolm Webb, said:
“These measures send exactly the right signal to investors. They properly reflect the needs of this maturing oil and gas province and will allow the UK to compete internationally for investment.”
That is what we were setting out to achieve, and I think those measures were very well received.
Members have highlighted what the industry is asking for: that we address the remaining fiscal barriers to late-life activity; that we abolish the supplementary charge, or at least reduce it by 10%; that we bring the rate of the investment allowance for offshore expenditure in line with that for onshore expenditure; that we temporarily remove all special taxes from exploration, so that only basic corporation tax will apply for all discoveries made over the next five years for the whole life of the field; and that we introduce a Government loan guarantee.
The Government have been building on the evidence gathered at working groups that met over autumn 2015. The Treasury, supported by the OGA, is conducting internal analysis of the findings of the three workstreams on barriers to exploration, infrastructure access and new entrants for late-life assets. As usual, should the Chancellor make any decisions, the announcement and implementation of any changes to the tax regime will follow the fiscal policy-making process. I hope that that reassures Members, but they should understand that I cannot make any further comments. It is not a matter for me anyway, but the Budget is coming the week after next.
In addition to looking into and undertaking further fiscal reform, the Government are supporting the industry in a number of other ways. The OGA has been established as an independent regulator and asset steward for the UK continental shelf. The Energy Bill before Parliament will provide the OGA with the powers it needs to maximise the economic recovery of oil and gas from the continental shelf. The OGA is working with the industry to identify opportunities to reduce costs, and good progress has already been made, with Oil & Gas UK’s recent activity survey showing that production rose by 10% in 2015, while production costs fell by a third. That is an impressive achievement.
As the hon. Member for North Tyneside (Mary Glindon) pointed out, we have recently re-established the cross-party oil and gas group, and we are aiming to promote the competitiveness of the offshore fabrication sector. Our first meeting, in January, was very productive. I am grateful to my hon. Friend the Member for Waveney (Peter Aldous), the hon. Member for North Tyneside and other Members for their involvement in the forum. As the hon. Lady mentioned, our next meeting will be with fabricators, and we will be looking at new opportunities not only in the traditional oil and gas sector but outside it.
Supporting the industry’s supply chain is crucial at this time, as it is a vital and integral part of the UK oil and gas industry. As those Members who have constituents who work in the industry and others who themselves have worked in the industry will know, it has suffered job losses and revenues falling by around a quarter last year. We must acknowledge that. The hon. Member for Aberdeen North (Kirsty Blackman) asked whether enough is being done about job losses. I can tell her that in intergovernmental ministerial meetings, and particularly in the work I am doing with my right hon. Friend the Minister for Small Business, Industry and Enterprise, we are examining what more can be done to view the energy sector holistically to see how job losses in the oil and gas sector can be a win, not only for offshore and onshore wind but, for example, for the new nuclear efforts. We are looking at what more can be done to provide new opportunities in the energy sector.
Despite the low oil price and the downturn of work being contracted offshore, there are steps we can take to support our supply chain and put it in the best position to win contracts. The OGA is actively involved in promoting future success through its supply chain strategy and board, for which unlocking new investment and future work is a priority. The OGA is working closely with the Department for Business, Innovation and Skills and with industry to make sure that companies remain competitive. The Government are working to further develop mechanisms to provide greater transparency about upcoming business opportunities to companies in the supply chain.
I am delighted to be able to inform Members that over the past few days I have held meetings with several offshore wind developers to emphasise to them that I want to see them do more to make the industrialisation of the UK offshore wind supply chain happen. In particular, the industry needs to work collaboratively to deliver a UK jacket foundation solution and competitive UK tower solutions. Successful delivery of towers and jacket foundations will create opportunities for fabricators and enable people with the right skills to transfer across to the offshore wind sector.
In the past 48 hours, I have met a couple of developers, one of whom told me that they have been very successful in winning overseas offshore wind business by using onshore Aberdeen-based oil and gas consultants with expertise in engineering, if hon. Members can follow that tortuous thought process. Rather than using offshore wind consultants, wherever they are based, they are using the UK’s long-established expertise in onshore oil and gas to win overseas wind business. That is important, and we need to do more to promote that interesting opportunity.
I am working with my hon. Friend the Minister for Skills to develop a national college for wind energy to provide people with the right skills to work in the sector. I had a meeting yesterday with a number of hon. Members from across the House to talk about what more we can do to get it up and running. Retraining is required if we are to take the people who lose opportunities in the oil and gas sector into offshore and onshore wind and other renewables sectors. There is a big opportunity there.
The UK has a strong record on manufacturing jackets and topsides for offshore wind substations. The majority of those items are manufactured in the UK. Sembmarine SLP Ltd, which won a contract from Siemens Transmission and Distribution in 2014 to design, engineer, procure, project manage and construct its platform’s jacket substructure and topside, has begun fabrication. The offshore transformer station, which is being constructed at SLP’s yard at Lowestoft on the Suffolk coast, is providing work for up to 300 employers for the next 21 months. I encourage all hon. Members—I know they are already doing this—to work with Ministers, cross-party groups and the OGA to look at other opportunities in the energy sector, not only on direct workforce re-engagement but on supply chain opportunities. That is really important. The Government and the OGA are continuing to work with initiatives such as the Scottish energy jobs taskforce and the New Anglia local enterprise partnership to support those who have already, sadly, lost their jobs. We need to continue that work.
In addition to those measures, during his visit to Aberdeen in January, the Prime Minister announced a package of measures to support the industry, including £20 million of Government funding for a second round of new seismic surveys to unlock new exploration activity in the UK continental shelf, which is the lifeblood of the basin. That funding, together with the OGA’s flexible and pragmatic licensing strategy for frontier and mature acreage, is designed proactively to influence and incentivise exploration on the UKCS. To back genuine innovation, the data from those new surveys will be made publicly available and £1 million will be allocated to fund innovative uses of data to unlock new fields. That additional investment will help to accelerate the drilling of new wells, which will replenish our reserves and lead to new infrastructure projects.
In addition, £700,000 is to be invested in the development of world-class 3D visualisation facilities at the Lyell centre at Heriot-Watt University in Edinburgh. The appointment of a new oil and gas ambassador will help to ensure the best possible access for UK companies to markets overseas, promote the North sea around the world and boost inward investment. The new strategy to maximise the economic recovery of offshore oil and gas in the UK will, subject to the will of Parliament, come into force soon. I share the sense of urgency of my hon. Friend the Member for Waveney, who rightly pointed out that that needs to happen as soon as possible.
In addition to all those measures, Innovate UK is set to launch an energy game-changer, which will make £1.5 million available to encourage innovators, microbusinesses and small and medium-sized enterprises from outside the energy sector to come up with radical solutions and disruptive technologies in response to challenges set by the energy industry. The Natural Environment Research Council will also allocate an additional £1 million investment in the successful oil and gas centre for doctoral training, led by Heriot-Watt University in Edinburgh. Aberdeen University is another core partner. That further investment will enable the programme to be extended for another year and will take the total number of PhD students funded under the scheme to 120 by 2017.
The Government are committed to supporting regional development. Aberdeen is Europe’s energy capital, and has rightly received a package of investment through the Aberdeen city region deal, which included funding for an oil and gas technology centre that will help to strengthen the UK’s position as a global centre of expertise for offshore oil and gas and encourage future investment in the UK. However, that is not the only area that contributes to the industry. Although Scotland supports 45% of the UK’s oil and gas jobs, largely in and around Aberdeen, 55% are located in England, with concentrations in the south-east, the north-west, the west midlands and the north-east. Those areas all support thousands of highly skilled and well-paid jobs. I was very pleased that my hon. Friend the Minister for Housing and Planning was able to join us for part of the debate and that he lent his support for our doing all we can to ensure the success of the sector. It is crucial that we have a joined-up approach across the Government, the OGA, industry and the regions.
As my hon. Friend the Member for Waveney made clear, the southern North sea off the coast of the east of England is a vital part of our industry. For that reason, we are moving forward with our regional development plans. This year, the OGA will carry out an evaluation of the potential for transforming the southern North sea into an energy hub.
As many hon. Members pointed out, although the industry faces challenges, we must remember that there are still opportunities out there. It is definitely not all doom and gloom. As Sir Ian Wood pointed out recently, there is still a huge prize out there. There are still up to another 20 billion barrels of oil equivalent to recover, and 10 new developments will come online in the next two years, which will create much-needed jobs. There is a strong portfolio of new projects in the planning stage just waiting for an upturn in the oil price.
Sir Ian Wood also said recently that we needed drastic changes to the fiscal regime to ensure the oil and gas industry’s future.
I am grateful to the hon. Lady for reminding us of that. The Budget is coming up soon, and I am sure Ministers are listening to what she has to say.
Production on the UK continental shelf rose by 10% in 2015 to 1.64 million barrels of oil equivalent a day. Almost 43 billion barrels of oil equivalent has been recovered so far, and there are up to 20 billion barrels—about a third—to be recovered. The UK remains the second largest producer of oil in Europe after Norway, and the third largest producer of gas after Norway and the Netherlands. The UK remains in the top 25 of global producers of oil and gas—for oil we were 21st in 2014, and for gas we were 22nd in 2014—despite the decline in production in recent years. The opportunities remain, and we still have every chance of success.
Although we wish to avoid premature decommissioning, it is a big business opportunity for the future, and £1 billion is already being spent per year. Many suspended wells are waiting to be permanently abandoned. We hope to stimulate that market and, in doing so, provide a valuable market for the supply chain. The OGA will publish a UKCS decommissioning strategy that will enable the UK service sector to become a hub for decommissioning and help UK firms to be ready to capitalise on the huge opportunities that are coming in the years ahead. That will be supported by the National Environmental Research Council, which is also investing up to £1 million in a cohort of new projects to support the development of expertise in the UK on decommissioning and its environmental management. With that proactive approach, we seek to position the UK so that it can be an early mover in that emerging market and establish a highly competitive and capable new sector.
I am grateful to my hon. Friend the Member for Waveney and the hon. Members for North Tyneside and for Aberdeen North for bringing this important debate to the House. The discussion has been constructive and I have listened with enormous interest to what right hon. and hon. Members have had to say. I congratulate the hon. Members for Livingston (Hannah Bardell) and for West Aberdeenshire and Kincardine (Stuart Blair Donaldson), but particularly the hon. Member for Livingston. She has a huge amount of experience in the oil and gas sector and it was interesting to hear her contribution. The hon. Member for West Aberdeenshire and Kincardine spoke of the importance of oil and gas to Aberdeenshire, but their importance has also been made clear by Members representing other areas.
There is no doubt that the industry is facing particularly testing times, not only in the UK but globally. As I have outlined, the Government are working hard with the Oil and Gas Authority and the industry to provide the right support to this vital sector during the current oil price crisis. There is of course more to be done, and I assure right hon and hon. Members that the Government will continue to do all they can to support this great British industry during these challenging times.
This has been a collaborative debate, so we are hopefully starting off here as things will move on. Over the past 50 years, we have perhaps taken the industry and what it produces in terms of our energy security for granted, and I sense that the Treasury automatically ticks off an enormous great dividend from the industry in the Budget every year. Then, when we have a shock to the system, we suddenly realise how important the industry is to the UK. We also need to focus on how important it is to the areas that are represented around this Chamber. If we do not get it right, we will hollow out those communities. The area that I represent is perhaps a little better off than other areas, in that our economy is a little more diversified, but the effects could nevertheless hit hard if we do not get this right.
The foundations have been laid over the last 18 months or so. The Treasury is in listening mode and my hon. Friend the Minister from DECC is in listening mode. They get it. The setting up of the Oil and Gas Authority has been so important. The Budget 2015 laid down some important foundations, and the Prime Minister delivered the right measures and packages during his visit to Aberdeen in January. I know that we cannot say much about the Budget that is coming up in two weeks, but it is important for the future of the industry that we get both the short-term measures we need to get through this particular challenge and retain the infrastructure, and the clear long-term message that this is the place to invest. People have invested here over the last 50 years and we want them to invest with confidence over the next 25 to 30 years.
I picked out three themes from today’s debate. The first is the importance of finance and bringing the banks with us. Secondly, innovation will be important moving forward. The industry has been innovative over the last year or so. It perhaps took things a little bit for granted up until then and was not the industry that it should have been, but it has responded. I listened at the conference in Norwich yesterday and the industry is full of ideas for moving forward. Finally, we need to send out a message of collaboration. I see the fabrication yards in my constituency daily—I suspect that the hon. Member for North Tyneside (Mary Glindon) and the right hon. Member for Tynemouth (Mr Campbell) see such things daily, too—but they go from feast to famine. I see the marvellous things being built and the lights shining on them at night. It makes me feel good; and then, all of a sudden, they are gone. We go from feast to famine too often. If we can build a spirit of collaboration, we could perhaps get the yards to have a steady book of orders. They could then invest in skills and infrastructure to make themselves world class. That is what we need to achieve.
If we look at this in terms of seasons, I sense that oil and gas production on the UKCS has rapidly moved out of summer and now faces autumn. Perhaps one good thing about climate change is that we get Indian summers. We want to secure a long Indian summer for the industry—Indian summers sometimes last into November. What I do not want is a harsh, bleak winter arriving too early.
Question put and agreed to.
That this House has considered the offshore oil and gas industry.